Profits on the exchange are the treasures of goblins. At one time they may be carbuncle stones, then coals, then diamonds, then flint-stones, then morning dew, then tears.
- Confusion de confusions, Joseph de la Vega (1688)
Around 1500 days ago this journey began with the objective of determining if it was possible for me to achieve the goal of financial independence.
Over time the precise objectives and targets have evolved, but this post is written to mark and record the – perhaps temporary – meeting of the portfolio goal of $2.18 million this week.
Consistent with much of the journey so far – it was unpredicted and happened in an unexpected way.
A recent surge in the value of Bitcoin, together with some equity market gains, has currently pushed the overall portfolio to just above the its target level. As Aussie HiFIRE remarked, this has resulted in the achievement of a novel kind of ‘BitFIRE’. This does not exactly sit comfortably within the mainstream vision of financial independence pathways. It is certainly not the way I would have ever contemplated reaching the end objective.
Tempting the fates
As someone with a classical history background just writing this post, in fact marking this occasion in any way, appears to be an open invitation for an urgent house call from Nemesis – the balancer of life, and punisher of hubris.
A sudden downward gust, an eddy in markets, or a repetition of previous long retreats from highs would be enough to make this a temporary aberration. Another year, or more, could easily stretch out before the portfolio objective is reached again in this kind of scenario. To be clear and precise, it is my current expectation that something like that scenario will occur.
Yet it is also a stubborn fact that previous milestones, once passed, have generally stayed passed from the momentum of the journey. Part of the purpose of this record is to set out my contemporaneous thoughts and perspectives on each part of the journey as it is being made, rather than withholding to appear falsely wise after the event about the course of progress. A time capsule, rather than a finished product.
An unexpected end to the year
The crossing of the threshold came on the last day of work for the year, giving the experience some added poignancy.
As with previous moments of reaching of milestones, however, there was no magical alteration in feelings. There was no epiphany or desire to start typing out a heartfelt letter of resignation. How much of this is due to my doubts about its permanence is difficult to tell.
In contrast, the dominant sensation was of a kind of underpinning confidence and satisfaction, quiet, but definitely present in how I interacted with the tasks and people of a normal working day. In short, external events, small work or life difficulties or pressures simply assumed less weight. Or perhaps, they assumed what was their proper weight all along.
What is present is something like the sensation a ships crew might feel on seeing their home port in view – knowing that even should they be wrecked by a storm, they have at least a fair chance of waking up on familiar shores close to their homes.
Running downwind to port
The other impression is of rushing suddenness.
A few months ago, following the deep March falls, I was discussing and contemplating a need to revise the timeframe for the achievement of the current portfolio goal to well beyond the target of July 2021. Since that time both equity markets and Bitcoin have pushed consistently forward.
The significant impact of Bitcoin on the progress over the past two years can be seen in the chart below. This tracks the level of the overall portfolio with (red) and without Bitcoin (blue).
[Chart]
A peculiar feature of Bitcoin compared to every other asset type is that it is repriced in global exchanges every moment of every day – there is no market closing value, or pause for public holidays or weekends. So this chart will be out of date by definition the moment after it is published.
What can be seen, however, is that – at least over the past two years – Bitcoin has emerged from a minor part of the overall portfolio, to a motive force pushing it to the target goal.
Revisiting the charts?
Obvious questions arise from this event. How, if at all, does this alter my plans and the journey? Is it the end of the journey?
Casting a longer backwards glance at progress allows some perspective to inform these questions.
It can be seen from the chart below that in terms of the portfolio the journey took approximately 7 years to reach around the quarter way mark. Another three years were spent to reach close to half way, and then a much more volatile four years to reach this (potentially temporary) threshold.
[Chart]
Mostly, the questions posed feel like matters for careful thought and review over the summer months. They are complicated by the rapid, unusual, unbalanced and ‘out of trim’ way the portfolio has crossed this threshold, and the strong potential for sudden reversal.
This is evident from the current asset allocation chart below.
[Chart]
In short, time will be needed to think through issues which a few months ago seemed more distant abstractions.
Currently, I have no plans to cease work, nor to rebalance the portfolio and realise high amounts of capital gains tax. Instead, my overall perspectives on managing this unanticipated volatility remain as detailed in this August update, and my position on the role of Bitcoin and gold in the portfolio remains unchanged.
Similarly, my thinking remains that I would be uncomfortable leaving full-time work while the equity component of the portfolio remains around $180,000 less than the level implied in the target portfolio asset allocation (of at least $1.63 million).
Reaching for stones, or coal, or tears?
One question to think through carefully will be the appropriate size of any cash reserves or ‘buffer’ to potentially seek to build up. Another will be to consider if there are any large ‘one-off’ expenditures that would warrant separate dedicated funds being set aside, rather than assumed funding through the planned portfolio income of $87,000 per year.
It is perfectly possible that consideration of these will see an adjustment to the shape of plans through my regular January portfolio review. Depending on events, the most enduring effect of this recent passing of a milestone is to push forward thinking around these questions and increasing their urgency.
At the least, searching for answers to these questions should provide a focus beyond examining the inevitable moment to moment journey of the portfolio from stones and diamonds to dew, or perhaps to tears.
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